Debt Elimination:

The way to a serene and happy life.

By V. Padmanabhan

If you are in debt, but in control of the situation, this article is not for you. The article is also not for desperate people (desperate for whatever reasons) who are running up debts knowing in full, their inability to service any debt and what is more, with complete and utter disregard.

By and large, most people whose personal finances are hopelessly mired in debt are in that situation because of lack of proper FINANCIAL PLANNING. Of course you could add on, cascading factors such as:

Lure and temptation fuelled by easily available credit cards and consequent avoidable over-spending.
Wrong credit structuring - poor negotiating skills.
Chasing Rainbows - mistaken belief that the high rates of credit can be beaten.

But getting out of the quagmire of spiraling debt is only possible if one is ready to face up to the fact that in the long run, you cannot consume more than you can produce. It involves a self-admission that in the past you have been guilty of the cardinal sin of profligacy. The usual remedial techniques suggested such as debt consolidation, smart spending etc can only be adjuncts to the primacy of tightening your belt. The solution begins with setting up expenditure budgeting and complete adherence to it. Human wants are unlimited, but you have to cut your coat according to the available cloth. Once this is understood and assimilated we can make headway.

A person in such a situation usually has a retrievable database (what with so many credit card statements) of a list of all possible expenses. Prepare an itemized list of the entire gamut. Avoid expenditure heads such as general or miscellaneous or at least ensure they remain insignificant or small in value. Explain the facts to all in the family or in other words take all dependants into confidence. You would be surprised with the cost saving ideas that come from the least expected quarters. Their participation and contribution of ideas could ensure willing cooperation and consequent motivation for the implementation

Cut out items which you think you can do without entirely

These could be things such as frequent eating out, driving when walking will do, taking taxis etc. You may decide that in future you will be walking to and fro from work. Such activities will tend to promote better health and at the same time reduce available free time with its expenditure potential. If distance prohibits walking, you could join a car-pool which has the added benefit of environmental friendliness.

Reduce the allotment under each head wherever possible.

This could be resorting to use of coupons in grocery stores etc., purchasing in bulk to avail of quantity discounts, taking time out to visit places such as Farmer's market,learning to cook. Always check the items purchased carefully. Ensure that nothing that you pay for has to be thrown away. Look for cheaper items.

Brand names are not necessarily better products. Resist the urge to keep up with the Jones' who live next door. Stay clear of installment payment plans. Forgo the desire to buy that pair of fancy shoes. Avoid shopping at ritzy stores where you pay for the ambience as well. Have family picnics carrying home-cooked food in place of visiting expensive eateries.

Think of other cost saving ideas.

You will be surprised at the way small, innocuous, daily and casual purchases snowball to exorbitant cost items.The above courses, are by no means exhaustive. Embed any practicable and worthwhile idea that occurs to you, in the schema before you start to forget. Iterate the above steps, at least till you have an expenditure budget less than your disposable income, leaving room for generation of some funds. This sum is absolutely essential for liquidating all of your accumulated debt. Many of the above will also promote better health and reduce medical bills.

Hold a family council for adoption of the expenditure budget. A formal and solemn occasion at which each member acquiesces in the details would be ideal.

The next step will involve making all payments in cash or check. Freeze all credit cards. Confiscate all add-ons with dependants. Ensure all orders and purchases are in line with the formal budget.

So much for the course of action in the area of expenditure. Let us turn to debt liquidation. The first task is to itemize all deferred payments or outstanding liabilities. This should be a complete schedule of all commitments requiring servicing.

Set a target date for debt elimination. Rank your debts in descending order of APR. Appropriate steps or combination of steps from the following to suit individual cases could be identified and included into your strategy.

Involve a close relative (member of the greater family) or a close friend who is personally financially stable. It is possible that this person has funds which is deployed at a rate of return lower than the average APR on your credit cards. Work out a rate at which she/he could extend you a loan to extinguish your debts with mutual benefit. Ensure that your adherence to the agreement by properly made out written IOUs mentioning the monthly repayments of principal and interest. Honor the arrangement to the letter lest you have family discord to contend with, in addition to debt-trap.

Reduce the number of your credit card accounts to as few as possible making sure that:

There are no hidden costs of transfer and consolidation. If there are costs then the financial benefits of transfer should outweigh the costs.

By negotiating with a fresh agency offering a lower APR in real terms and not just for the introductory period.

Arrange for a cheaper loan say with a Bank by mortgaging an asset. It is possible that you have a home on which you can get a loan at a rate of interest as low as 6 or 7 %. But certainly make sure that borrowed amount is limited to the total of debts.
Sell off your liquid investments - Mutual funds/Equities: It is no secret that many people invest in mutual funds/equities etc. while remaining heavily in debt. They harbor the illusion that the appreciation in value of these funds outweighs the interest on debt and deferment of credit card dues. The effective annualized interest charge on the latter could be as high as 27 %. Achieving comparable returns on a basket of securities over long periods of time consistently is a very difficult task. If you can identify such a person you do not have to look further for a millionaire.
Extinguish your debts strictly in order of the ranked list prepared above. If you have consolidated your debts properly, the number of accounts at this stage should be few and each pay-off will only reduce the number s till further.
Make a solemn pledge to stay forever out of the DEBT-TRAP. You will enjoy peace of mind and a serene and fulfilling existence. In case you must have credit cards ( for emergencies ) keep it strictly that way. For this, just one will do.